Small and medium enterprises (SMEs) play a vital role in any economy, and especially Nigeria. SMEs drive growth, employment and reduces the poverty gap. Yet many entrepreneurs struggle to grow their business to a successful enterprise or even survive the first year of operations. To understand the challenges of small business owners Accounteer recently completed its annual African SME Survey.
To get access to a wide variety of businesses the survey was held in collaboration with Mobile Forms. Mobile Forms is an Abuja based startup that has revolutionized the way data is collected through a network of field agents.
Collecting data in Africa has always been a challenge. Thanks to the rapid adoption of new technologies and innovative services such as Mobile Forms we were able to connect with business owners that were previously unreachable. The response received gave us valuable insights into the daily challenges of Nigerian businesses and will enable us to provide better services to stimulate their growth.
Access to funds is one of the biggest challenges Nigerian business owners face. 88% of the respondents have put their savings on the line to finance the start of their business. Only a minority has received external funds. 15% has received outside investment from friends and family, 7% secured a bank loan, and 4% of the respondents used a micro credit.
One of the findings is that outside investors place value on the investment the entrepreneur has made itself. Only one in three that businesses that received outside investment did not have an entrepreneur who invests his savings first. This comes as no surprise, as it is a way for an investor to measure the motivation of the business owner.
Lack of access to funds reflects itself in the liquidity of Nigerian businesses. 89% of the surveyed business has experienced cash problems. The main reasons are late payment of customers (33%) and substantial investments made (29%).
Tip: Solid financial records equal creditworthiness
When applying for a loan don’t just provide a single snapshot of your finances at one point in time. Instead, provide an overview of how your business has evolved over time and make sure the numbers back your story. Investors place a higher value on figures rolling out of accounting software rather than a spreadsheet.
The most heard reason why access to capital remains difficult is the lack of trust between financial service providers and the businesses. Businesses are unable to present reliable financial records which affect their creditworthiness. From the surveyed businesses only one out of ten uses formal accounting software to manage their administration.
Those who do use accounting software often use domestic accounting solutions which are installed locally at the business. Adoption of online accounting solutions provided by global providers such as Sage, Xero, Quickbooks and Wave remains low.
As mentioned, most businesses do not use specialised software to manage their books. The majority keeps paper records (72%), another 18% utilises spreadsheets such as Microsoft Excel to keep track of their finances, and 10% of the surveyed businesses don't keep track of their finances at all.
Tip: Know your numbers
To avoid cash problems knowing your numbers is key. Make sure you use of dedicated accounting software and keep your books up to date on a daily basis. Regularly review your payables and receivables balances to ensure you have sufficient cash to fulfil all your obligations. Chase late paying customers in time and pay you suppliers just before the due date of their invoices.
Despite the challenges mentioned in this report, Nigerian businesses remain positive. 96% of companies reported to be profitable and 98% expect their business to grow over the next year.
To achieve this growth 51% of business sees better access to financing as the key driver. Increase in customer demand (30%) and overall economic growth (12%) follow next. A minority sees better infrastructure (3%) and faster internet (2%) as the primary factor for further growth.
A significant 94% of businesses feel the government is not supporting small business owners enough. This means the government has still a job to do to promote entrepreneurship and build a better environment where small businesses can thrive.
Accounteer provides online accounting software for small and medium sized businesses. Accounteer is active in over 50 countries with a strong focus on the African continent.
About Mobile Forms
Mobile Forms is a mobile platform that has changed the way data is collected. Through a network of field agents, organisations can connect directly with their target audience and collect in depth responses. Mobile Forms is an Abuja based startup that has been part of the first cohort of the Ventures Platform Accelerator.